Lundin, Nannan He, Ping Qian, Jinchang Sjöholm, Fredrik
Year of Publication:
IFN Working Paper 708
FDI can be an important channel for developing countries ability to get access to new technology. The impact of FDI on domestically-owned firms technology development is less examined but it is frequently argued that technology externalities or demonstration effects could have a positive impact. Another and so far little examined effect of FDI on technology development in domestically-owned firms is through the impact on competition. We examine the effect of FDI on competition in the Chinese manufacturing sector and the effect of competition on firms R&D. Our analysis is conducted on a large dataset including all Chinese large and medium sized firms over the period 1998-2004. Our results show that FDI increases competition but there are no strong indications of competition affecting investments in R&D.